There’s a part of me that thoroughly enjoys a smackdown between government agencies. (The other part of me is screaming at the government inefficiency and waste of my tax dollars). Here’s a good one.

As most of you know, the U.S. Department of Labor released its proposed revisions to the overtime regulations under the Fair Labor Standards Act. The current regulations set forth three tests for exempt status: (1) the employee must be paid on a salary basis; (2) the salary threshold must be at least $455 per week ($23,660 per year); and (3) the employee must meet duties tests specific to the exemption in questions (executive, administrative or professional). As we discussed (with a highly raised eyebrow) in a previous blog, the proposed regulations contain only one actual change to these tests – an increase in the salary level to over $50,000 per year, with yearly increases thereafter.

The public was invited to submit comments on the proposed regulations – 289,932 individuals and entities took them up on that invitation. One of those was the Small Business Administration – another federal agency. The SBA has an Office of Advocacy, which represents the interests of small businesses before Congress and other federal agencies.

Advocacy (as it refers to itself) noted that a federal law, the Regulatory Flexibility Act, requires federal agencies “to assess the impact of the proposed rule on small business and to consider less burdensome alternatives.” Advocacy submitted comments questioning the validity and process of the DOL’s proposed regulations, and detailing numerous criticisms of the regulations:

  • DOL undercounted the number of small businesses by relying on general census data and failing to utilize more industry-specific data available.
  • DOL failed to account for significant regional differences in wages.
  • DOL did not include key small entities such as non-profit organizations and small governmental jurisdictions, whose operating budgets may be subject to funding restrictions on their use for discretionary costs such as labor.
  • DOL underestimated compliance costs – both in terms of managing the change (without internal HR, legal counsel or financial advisors) and in increased payroll costs – for small businesses.
  • DOL did not account for non-financial costs to small businesses, such as loss of flexibility for work schedules and performing work outside of the office, as well as a negative impact on morale associated with the perceived lower status of being an hourly worker.
  • DOL failed to consider less burdensome alternatives, such as adjusting the threshold to reflect regional and industry differences, extending the period of implementation to up to 18 months, and instituting a gradual increase in the salary threshold.

Advocacy made a number of recommendations to the DOL. It suggested that DOL should publish a supplement to its proposed regulations that reanalyzes the impact of the regulations on small businesses. It reminded the DOL that the DOL is required, by law, to publish a Small Business Compliance Guide for the regulations. As we previously noted, while no actual changes to the duties tests were proposed, the DOL solicited input on possible changes; Advocacy suggests that any eventual changes to the duties tests should be set forth in a separate proposed regulation to allow small businesses to evaluate the possible impact of these changes and provide meaningful public comment. Finally, Advocacy requests that the DOL evaluate the impact of the proposed yearly increases on small businesses.

Advocacy ends its submission by thanking the DOL for participating in Advocacy-hosted listening sessions and roundtables with small businesses – although given that DOL apparently ignored the concerns of small businesses expressed at these sessions, such thanks are weak at best. And understandably so.

Stay tuned for round 2.